Hilcorp Energy first in Pa. to test law allowing access to gas without property owners' consent
By Timothy Puko
Published: Saturday, Oct. 5, 2013, 9:00 p.m.
Bob Svetlak has lived on his family's Lawrence County homestead since 1949, and none of it's for sale — not his house, not his trees and certainly not his gas rights.
But he may not have a choice about the gas.
Hilcorp Energy Co. has taken legal steps to access natural gas beneath the 14.6 acres Svetlak owns near the Ohio border without his consent, arguing a law more than five decades old gives it the right to combine his land with others into a drilling unit.
If Hilcorp succeeds, it would be the first time in Pennsylvania's shale boom that a driller used the tactic, and it could lead to more widespread use.
“I didn't buy this land to sell it,” said Svetlak, 73, of Pulaski. “I bought it for peace and property, like a lot of people in this country. I live here for the tranquility.”
Hilcorp is using a legal maneuver known as forced pooling, in which neighboring plots of land are combined into a single unit for drilling. In geologic formations deeper than the Marcellus shale, the 1961 law allows drillers to combine gas rights into pools, even if property owners oppose.
Any use of forced pooling likely will ignite a public outcry. Attempts to extend broad pooling powers to Pennsylvania's Marcellus shale drillers have been met with swift opposition — even Gov. Tom Corbett, a supporter of gas drilling, opposed the idea in 2011, calling it “private eminent domain.”
“I've kind of been waiting for this situation to come up,” said Ross H. Pifer, a Penn State University law professor who follows shale drilling legal issues. “I think a lot of people will be surprised to recognize that Pennsylvania does already have compulsory pooling.”
Svetlak's property is part of 3,267 acres in Pulaski and neighboring Shenango in Mercer County where Hilcorp wants to drill. The area has not attracted much drilling, but Hilcorp wants to tap the Utica shale, a geologic layer thousands of feet below the Marcellus.
The company acquired the right to drill on all but 35 acres, which includes at least four properties whose owners don't want to lease or who leased with another company, according to the Aug. 26 filing Hilcorp made to the state Environmental Hearing Board.
Hilcorp spokesman Justin Furnace declined interview requests. He wrote in an email that the company spent months negotiating and made “good-faith” attempts to lease every tract.
Kevin Colosimo, a lawyer for Hilcorp, said he anticipates no obstacles to Hilcorp's request that a judge in Pittsburgh will decide.
‘Not about the money'
Hilcorp has its supporters.
Among them is Martin “Bruce” Clingan, 71, owner of the 200-acre Clingan's Tanglewood Public Golf Course. Clingan, whose home is on the Pulaski golf course property, said it's unfair for a few small-parcel owners to block him from getting the most from his property.
“I paid taxes on this property for probably 60 years,” Clingan said. “And I thought, ‘Well, maybe the ground owes me a little bit of something — moneywise — back.' If anybody tells you it's not the money, they're crazy.”
Clingan said he signed a deal with Hilcorp in 2010 for about $650,000 in upfront bonuses plus 18 percent royalties.
Colosimo argued in Hilcorp's complaint that pooling protects landowners from losing their oil and gas to neighboring wells that don't pay them. The holdouts would get paid an amount set by the court.
“It's not about the money for us. We want peace; we want clean air. And now (drilling is) going to be forced on us,” said Suzanne Matteo, 36, of Pulaski. “It's almost like Hilcorp is bullying me and targeting me and other landowners. It doesn't seem constitutional.”
The Matteo family has four acres of land on which they planted a small garden of corn, soy and sunflowers. They don't want the industrial work of a drill site with traffic, lights, noises and smells close to their home, she said.
Matteo said her family's property lies within the boundaries Hilcorp outlined in its court filing, but she said the company won't tell her whether it is indeed part of the drilling unit. If so, she wants to fight it.
The Onondaga divide
Forced pooling laws of varying strength exist in nearly 40 states, according to a 2011 count by ProPublica, a nonprofit investigative news agency. Most laws were passed in the middle of the 20th century to promote conservation and end the days when derricks competed literally side by side to slurp oil from the same pool.
Hilcorp is targeting a rural area, far from hot spots of the shale gas rush. The Utica shale isn't as popular in most parts of Pennsylvania because of its depth and lack of liquid gases that bring in more money.
Hilcorp claims its target is more than 7,400 feet deep, a shallow part of the Utica. Its one test well averaged about 1.8 million cubic feet of gas and 33 barrels of oil a day for about four months this year, state records show.
Experts say forced pooling applies to the Utica but not the Marcellus in Pennsylvania largely because of history.
When Pennsylvania passed its law, the state's oil and gas industry rarely drilled below the Marcellus. Lawmakers chose the next layer down, the Onondaga, as a compromise to promote conservation in future drilling without upending industry practices, experts said.
But new technologies — sideways drilling combined with the rock-cracking hydraulic fracturing — changed drilling and revived a dormant industry, with target zones coincidentally on either side of the Onondaga divide. Hilcorp's Utica target lies 3,800 feet below the Onondaga.
State records show companies drill about 100 horizontal wells a month into the Marcellus. The Utica's depth in Pennsylvania makes it more expensive to reach, but it's rich enough with gas to make it potentially profitable.
“I don't see any logic in having pooling in one (formation) and not having it in the other,” said Louis D. D'Amico, a pooling supporter and leader of the Pennsylvania Independent Oil & Gas Association. “I think it's foolish.”
Reviving a controversy
Little attention has been paid to existing pooling laws, but when drillers wanted to extend them to the Marcellus formation, many people jeered the simple concept of giving up land for drilling against their will — even if they get paid. They found allies in some environmental groups eager to block drilling.
Rep. Garth Everett, R-Lycoming County, suggested a comprehensive pooling law in 2010 but backed off when he “got beat to death over” it by constituents, he said in a July interview.
The Hilcorp case could become a tipping point, spurring outrage or giving proponents a chance to show a well-run system can benefit drillers and landowners, experts said.
Hilcorp claims the hearing board, led by the Downtown-based Chief Judge Thomas W. Renwand, has until mid-October to announce a hearing date.
Getting money won't be enough to please Svetlak, a retired millworker. His house dates to the 1800s, and he doesn't want his fields or woods to change.
“I happen to like what I've got,” Svetlak said. “I don't want to look outside and see dozers and oil tanks. ... And I may have to someday.”
Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or email@example.com.
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